On the face of it, Sales and Operations Planning (S&OP) seems to be the most simple and logical business processes. It’s critical to both commercial and operational success, and intuitively obvious in its importance and application. Yet, its complexity cannot be denied.
The entire concept requires a company to update a forecast, which drives the sales plan, to influence the production plan, in order to stimulate the inventory plan, which impacts customer lead time (backlog), drives new product development planning, motivates the selection of the strategic initiative plan, and ultimately results in a financial plan. Obviously, an exhausting list, and a lot of moving parts! So what is the special sauce to Sales & Operations Planning (S&OP) and how do you get some for your company?
Understand Your Demand
What do you expect to sell? Getting this first, essential ingredient right is the foundation of it all. Simple and to the point. No need to read any further. Mastering your demand will drive whether your supply organization can meet your sales plan and, if it can’t, what options are available to address the shortfall. Only from that outcome can a company derive the financial implications and thus future financial decisions or investments.
Responsive & Reactive Procedures
For any business, the alignment of opportunity, balanced with risk and how best to respond to that predicament, is the most basic of decision-making processes — can I meet my sales expectations, and if I can’t, what must be done to ensure the business can remain viable?
The magic ingredient to S&OP is the essence of the Supply and Demand balancing act. It is the heart of S&OP, yet so many organizations struggle with this most fundamental capability.
Sadly, there are few organizations who consistently master the balancing of conflicting viewpoints. But it must start here. Consider focusing attention on the following areas where the most common discrepancies exist:
- The differing focus of the Marketing and Supply Chain functions – Often, these two organizations are motivated, measured and rewarded by completely opposite performance metrics or key performance indicators (KPI’s). Both understanding their internal operational priorities and how each can help “balance” the other will change the conversation, and reduce the conflict.
- The gap in culture/ relationships – Far too many organizations describe their culture in terms of business units or silos. They may also go so far as to say, the leaders of these groups don’t even speak due to territory-defending the behavior. If this is the case, look straight to the top of the organization and demand more of your leadership team. Remind them that one cannot exist without the other.
- The “Green Volvo” case study is a great example of where the gap in communications caused a major misalignment in activity, with marketing responding to overstocking of unwanted green Volvos by agreeing to commercial deals to shift this unwanted stock without properly passing that message to the supply chain. As the stock started to sell, the supply chain team spotted an upward spike in demand, one that they responded to by making MORE green Volvos! This move exasperated the issue by needlessly adding stock and impacted the ongoing profitability of the organization.
- The difficulty in aligning a sales target with a realistic “plan to make” – It would be a career limiting move to openly admit sales targets won’t be achieved from the beginning of the forecasting cycle. As such, sales targets always seem so close to the company’s revenue strategy. As time passes, however, sales goals begin to slowly adjust to that settling point of reality. The problem: the supply chain side of the house has invested in materials to meet those original figures as part of their “plan to make” operations. They do not always have the luxury of being able to adjust so quickly to the wavering sales figures. So, who is to blame? The chicken or the egg?
Making Sense of Data Across an Organization that Speaks Different Languages
This is the third must-have ingredient in the S&OP Special Sauce. It is not uncommon for the finance organization to roll up figures at a regional level, while commercial groups break that same data into sales territories, while manufacturing teams speak in terms of API’s (active pharmaceutical ingredient), product lines and inventory figures. That’s why technical support capabilities, designed by companies such as SAP, Oracle, even Rapid Response or Anaplan, are essential “cube bender” platforms for data. In order to drive sound decision making, companies must aggregate information in a way that makes sense to all of the various parts of the business. But when each part of the supply chain needs data in a different format, this drives additional confusion and inconsistencies. Assumptions are made due to tight deadlines, and as we all know, that rarely leads to a perfect outcome.
The goal, of course, is to get the information to flow and drive seamless decision-making. As such, we must align the outcome of Demand Reviews with an end-to-end balancing of Supply that enables clarity on what sales we can meet, and what risks exist across complex Supply Chain networks. This requires companies to consider the organizational structural implications of S&OP based on multiple entities in the Supply Chain to include complex Commercial and Financial structures.
Get All the Right People in the Room
The fourth, and final ingredient in the S&OP Special Sauce. Creating the even the most basic S&OP environment is an undertaking — and nobody said it would be easy! But without the focus on people, even the best of intentions will cause a great fall. People are by far the most challenging part. If success is the end game, people need to become the focus. So remember the following:
- Sadly, any chain is only as strong as its weakest link. If your organization is supply chain focused, then Commercial and Finance folks will likely feel disengaged. Bring everyone into the conversation as equals.
- Senior leadership is the ultimate owner for driving business focused discussion about sales priorities, investment decisions and what drives the supply chain. If those priorities are not clear to the entire company, and specifically to those supporting and driving those decisions, life will continue to be a series of finger pointing and report-driven backtracking.
- Never lose sight of the fact that regardless of your organization’s product or service offerings, you must realize that business process is in command, not the supply chain itself. Business process eats supply chain for lunch.
Joy Taylor | TayganPoint Consulting Group | firstname.lastname@example.org | @joytaylorsays
David Evans | Greedy Lemon Consulting
To read the article as it originally appeared in Supply Chain Opz, click here.